If you wonder why companies send operations thousands of miles away, do the maths. An architect earns $3,000 a month in the U.S. but $250 a month in the Philippines. A Java programmer earns $60,000 a year in the U.S. and makes $5,000 annually in Manila. U.S. aerospace engineers earn $6,000 a month; the same workers in Russia take home $650. Net savings on operations are generally somewhere in the 20% to 40% range.

British Airways calculates that it saves $23 million a year for every 1,000 jobs it relocates to India.Despite the savings, quality does not suffer. Actually, a quest for greater quality is aprimary reason companies move functions offshore. Call centers show how offshore outsourcing can improve quality, in part because Filipinos highly esteem call center jobs, while Westerners hold them in low regard. Most Filipino call center operators have university degrees. Thus, all offshoring is not cost-driven. Instead it rests upon “strategicsourcing ,” that is, establishing partnerships to enhance capabilities as well as profits ( Corbett 2004)

Companies, according to Corbett (2004) typically spend about 2% of the value of their outsourcing contract to manage the vendor relationship. Effective management of vendors is based on these 10 principles:

1. Maintain strategic responsibility — Operational issues must be handled at various
levels, but do not delegate the alignment of your fi rm’s interests with its vendor/
supplier. Making sure that the relationship works is a job for a top executive.

2. Create multiple organizational links — Promote them at every level of the company.

3. Hold regular meetings — Get together periodically to iron out any issues.

4. Employ technology — Use the Internet, e-mail and such tools in management.

5. Define escalation processes — Everyone should know the processes to be followed
when issues need to be elevated to higher levels.

6. Use a scorecard — Define and apply metrics that will gauge success.

7. Apply carrots and sticks — Motivate employees with fair incentives and penalties.

8. Reward your vendor’s employees — Without becoming a co-employer, fi nd ways to
motivate and recognize the employees of your outsourcing partner.

9. Define the change process — How will both firms address the need for change?

10. Honor the relationship — Carefully manage, respect and nurture the outsourcing
relationship. It is a strategic asset for your company.

Recommended Source: The Future of Outsourcing ( Corbett 2004)
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